Ka Zeng - Trade Threats, Trade Wars: Bargaining, Retaliation, and American Coercive Diplomacy

Figures

Figure 1.1. U.S. trade deficits with Japan and China, 1991-2001

Figure 3.1. Asymmetrical export dependence and responsiveness to U.S. pressure

Figure 3.2. Structure of trade and responsiveness to U.S. pressure

Figure 3.3. Predicted probability of threat effectiveness

Figure 3.4. Predicted probabilities of trade war

Figure 4.1. Top five commodities in U.S. trade with China (SITC-3), 1997-2001

Figure 5.1. World semiconductor market, 1982-95 Figure 5.2. U.S. semiconductor market, 1982-95 Figure 5.3. Japanese semiconductor market, 1982-95 Figure 7.1. U.S. and Canadian stumpage prices, 1977-84

U.S.-Japan Trade Conflicts: Semiconductors and Super 301

The U.S.-Japan trade conflicts over semiconductors as well as the Super 301 negotiations over supercomputers, satellites, and forest products highlight the importance of broad consensus in the United States in favor of sanctions for bargaining outcomes. The negotiation over semiconductors was one of the most drawn out and acrimonious between the two countries. It started in the early 1980s, when the United States began efforts to deal with the undercutting of the American semiconductor industry by increasingly competitive Japanese firms. Since then, sustained American pressure, backed by the threat of further action, helped to produce a major bilateral agreement in 1986 and another one in 1990, providing American chip producers with some relief from Japanese dumping in the U.S. market and with greater access to the Japanese market. Although the negotiations were often protracted and difficult, tough talk by both the Reagan and Bush administrations forced Japan to halt its predatory pricing behavior and to open up its protected domestic market to American semiconductor products. American pressure thus played a crucial role in preventing the further slide of the U.S. semiconductor industry.

The Super 301 investigations between 1989 and 1990 in turn stemmed from U.S. concerns about Japans protectionist policies in the satellite, supercomputer, and forest products industries. In the first two issue areas, the United States complained that Japan, through policies of industrial targeting designed to promote the development of autonomous supercomputer and satellite industries, had effectively excluded American producers, who were very competitive elsewhere in the world, from its public-sector market. In the area of forest products, the United States directly challenged a wide array of tariff and nontariff barriers in the Japanese forest products market that not only were GATT-illegal but also impeded American producers access to the

Japanese market. The negotiation in each of the cases presented here allowed the United States to achieve its most immediate objective of opening Japanese government procurement to foreign bidders or of forcing the much-desired Japanese tariff cuts. Although, in the supercomputer and satellite cases, the United States may not have achieved its long-term objective of deterring Japanese government targeting of these industries, by prying open Japans protected home market, it at least succeeded in thwarting the rapid ascent of Japanese industries in the global market.

In each of the cases cited here, domestic interest groups unified support for threat tactics enhanced the chances for American negotiators to obtain a favorable outcome. Unlike in U.S. trade negotiations with China, where efforts by export-seeking industries to impose sanctions on the target were often undercut by import-using interests who were unwilling to see their access to their potential suppliers cut off, export-oriented American producers involved in each of these cases did not encounter any major opposition from other segments of the business community. Indeed, since the United States and Japan competed in so many product categories, there was a large constituency in the United States that faced Japanese competition. Under these circumstances, sanction threats won support not only from the semiconductor, supercomputer, satellite, and wood producers, who were interested in expanding U.S. market access in Japan, but also from other import-competing interests (such as electronics and auto manufacturers in the semiconductor case) who would benefit from the restrictions placed on Japanese exports to the United States. In the Super 301 cases, organizations such as the U.S. Chamber of Commerce and NAM that were opposed to sanctions in the China cases all came out in favor of sanction threats against Japan. The pervasive feeling within the U.S. business community that Japanese nurturing of its domestic industries seriously injured American producers in various sectors further fed this protectionist sentiment. Since the sanction threats promised benefits to either the export-seeking interests (if sanctions succeeded in extracting concessions) or the import-competing interests (if they had to be imposed), they enjoyed wide support from the U.S. business community. This unprecedented unity signaled to Japan that it could hardly escape some form of sanctions should it fail to make meaningful concessions, prompting the Japanese to take U.S. demands more seriously.

Reinforcing unified industry support was the executive branchs greater willingness to adopt a proactive trade policy in order to lessen congressional pressure to level the playing field for American industries. Especially when the issue involved high-technology industries with significant military and economic implications, the executive branch had demonstrated considerable assertiveness, frequently shifting from a policy of benign neglect in favor of managed trade to reshape comparative advantage in such leading industrial sectors and to maintain the overall competitiveness of the American economy. Even in the wood products case, where such strategic trade considerations were less prominent, the consensus that the field on which the trade game was being played was unfairly tilted against the United States produced strong incentives for executive action.

Lack of strong domestic opposition, combined with the executives greater willingness to intervene, demonstrated to the Japanese the U.S. resolve in seeking a fair trade outcome, indicating that sanction threats had the full support of the major domestic actors. Domestic unity enhanced American threat credibility, leading to the conclusion of several agreements that increased the U.S. share of the Japanese market. A highly competitive trade structure between the United States and Japan thus facilitated the effective use of aggressive bargaining tactics toward that country.

The U.S.-Japan Semiconductor Trade Conflict

Industry Initiatives

The semiconductor dispute was initiated over industry complaints that the Japanese government, through its classical strategy of promotion and protection, had created a highly competitive domestic industry that, by the mid-1980s, had outperformed American firms in terms of both the quantity and quality of semiconductor production.1 As Japanese companies had displaced American firms as the leading merchant semiconductor producers and as the phenomenal rise in Japans share of the global semiconductor market had put American firms at a distinctive comparative disadvantage, U.S. chip manufacturers began to direct their attention to two particularly irritating forms of Japanese practices: Japanese dumping in both the United States and the world market and the lack of access to the Japanese domestic market.

It was at the urging of American chip producers that Washington initiated market access negotiations with the Japanese government. Early industry pressure forced the Japanese to enter into negotiations with the United States under the auspices of the U.S.-Japan Working

Group on High Technology in April 1982. This early set of talks produced an agreement in which the Japanese government committed itself to using its authority to prevent dumping, providing U.S. firms with greater access to Japanese patents, refraining from copying U.S. propriety circuits, and encouraging Japanese firms to increase purchases of U.S. semiconductor products through administrative guidance.2 Throughout 1983, the semiconductor industry released numerous reports and studies with detailed accounts of the unfair trade practices pursued by Japanese chip makers and the Japanese government. In April 1983, as the second round of bilateral negotiations over market barriers got under way, industry representatives explicitly called on the government to demand a 30 percent share of the Japanese market, a share that they maintained was what they would have deserved if the Japanese market were open.3 The industry went even further to draft a Section 301 petition in the summer of 1983.